I'm confused - meaning of income for lo doc loans

[Nth Brisbanite]

To be able to get a lo doc loan it is critical to write down the correct income. But how do lenders define income? or don't they and leave it up to the borrower? Is it:

• Past financial year's net profit (before tax)
• Past financial year's net profit (after tax)
• Past financial year's net profit plus capital gains
• Past financial year's net profit plus estimated capital gains
• Estimated current year's net profit (before tax)
• Estimated current year's net profit (after tax)
• Estimated current year's net profit plus estimated/actual capital gains
  ????

or none of the above

To all the mortgage brokers/lenders and others on this forum, what do you think?

 

[josko]

hi North Brisbanite,

Are you talking about a Business profit and Loss or Net and Gross Incomes?

 

[Bradsdad]

As a rule of thumb it's net profit before tax for companies and gross income for individuals. Each lender has their own declaration form that need to be completed and the wording can vary.
For example, ANZ's states average net profit (before tax) for the past 2 years yet CBA's has not mention of the last 2 years average.

 

[Nth Brisbanite]

hi North Brisbanite,

Are you talking about a Business profit and Loss or Net and Gross Incomes?

Yes, I'm talking about a business' profit and loss.

 

[Nth Brisbanite]

As a rule of thumb it's net profit before tax for companies and gross income for individuals. Each lender has their own declaration form that need to be completed and the wording can vary.
For example, ANZ's states average net profit (before tax) for the past 2 years yet CBA's has not mention of the last 2 years average.

Yes, that's why I get confused. Does net profit included unrealised (when property not sold) capital gains of property or only realised (when sold)? I've had some people say that if you are an investor that you can include capital gains.

 

[Bradsdad]

Yes, that's why I get confused. Does net profit included unrealised (when property not sold) capital gains of property or only realised (when sold)? I've had some people say that if you are an investor that you can include capital gains.

Unrealised CGs wouldn't appear in your net profit should you in fact have completed a return would it? It would be more like "cash in the bank" but instread of in the bank it would be in the property. I would class this as projected income and see this as a danger should there be a downturn in housing prices. I would suggest talking to your accountant or the ATO on how the ATO would look at this should you be audited. Otherwise maybe look for a lender who just has an affordability statement (getting fewer and fewer available) say like St George

 

[Gools]

Yes, that's why I get confused. Does net profit included unrealised (when property not sold) capital gains of property or only realised (when sold)? I've had some people say that if you are an investor that you can include capital gains.

A loan application should contain both an income section and an asset section. Wouldn't unrealised capital gains be included as an asset?

 

[Nth Brisbanite]

A loan application should contain both an income section and an asset section. Wouldn't unrealised capital gains be included as an asset?

According to tax law, it should be if you are a passive investor and the vast majority of your earning comes from PAYG. I've been advised (might be wrong), it could be counted as income if you are a full time/part time investor or developer.

 

[Nth Brisbanite]

I would suggest talking to your accountant or the ATO on how the ATO would look at this should you be audited. Otherwise maybe look for a lender who just has an affordability statement say like St George

I'd like to know what income means when applying for lo doc loans rather than a strict definition under income tax law. What goes in a person's income tax return could be different from what goes in for a lo doc loan

What is an affordability statement? I remember signing a similar statement for a doc loan.

Thanks for the PM

 

[s_t]

To be able to get a lo doc loan it is critical to write down the correct income. But how do lenders define income? or don't they and leave it up to the borrower? Is it:

• Past financial year's net profit (before tax)
• Past financial year's net profit (after tax)
• Past financial year's net profit plus capital gains
• Past financial year's net profit plus estimated capital gains
• Estimated current year's net profit (before tax)
• Estimated current year's net profit (after tax)
• Estimated current year's net profit plus estimated/actual capital gains
  ????

or none of the above

To all the mortgage brokers/lenders and others on this forum, what do you think?

whichever is highest!

 

[Bradsdad]

I'd like to know what income means when applying for lo doc loans rather than a strict definition under income tax law. What goes in a person's income tax return could be different from what goes in for a lo doc loan

What is an affordability statement? I remember signing a similar statement for a doc loan.

Thanks for the PM

In my opinion "unrealised CGs" isn't income but an asset then so net income (before tax) for companies and gross income for individuals.

An affordability statement doesn't require declaration of income but rather a declaration that you can afford repayments of "X" amount without hardship. You still may be required to list your assets and liabilities depending on whether the product is Lo or No-Doc

 

[Rixter]

Get a no doc. No need to declare any income. Works for me!

 

[Nth Brisbanite]

Get a no doc. No need to declare any income. Works for me!

Rixter, I've heard that no docs are virtually extinct and the few left come with difficult conditions. Care to tell me who you get no docs from and conditions such as interest rates, application and valuatiion fees, termination fees, LVR % etc.??? I'd love to get some more.

I've used Macquaries no docs (70% LVR) in the past, but they no longer available for new borrowers.

 

[Rixter]

Rixter, I've heard that no docs are virtually extinct and the few left come with difficult conditions. Care to tell me who you get no docs from and conditions such as interest rates, application and valuatiion fees, termination fees, LVR % etc.??? I'd love to get some more.

I've used Macquaries no docs (70% LVR) in the past, but they no longer available for new borrowers.

I used RHG for my last 2 No Doc 80% LVR. $395 Applic. Val $200. Rate is currently a very reasonable 9%.

Consult your IP Savvy MB and Im sure they can help you with the lenders and specifics of each.

I hope this helps.

 

[Nth Brisbanite]

I used RHG for my last 2 No Doc 80% LVR. $395 Applic. Val $200. Rate is currently a very reasonable 9%.

Consult your IP Savvy MB and Im sure they can help you with the lenders and specifics of each.

I hope this helps.

My IP Savvy MBs were the ones that told me no docs are virtually extinct. Isn't RHG the old RAMS who are no longer writing new loans. When did you get your last 2 no docs?

Loved to get the above product if it still exists.

 

[Rixter]

My IP Savvy MBs were the ones that told me no docs are virtually extinct. Isn't RHG the old RAMS who are no longer writing new loans. When did you get your last 2 no docs?

Loved to get the above product if it still exists.

Who is your MB??

Last November...Yes RHG are former RAMS. Id suggest you contact a couple other IP Savvy MB's.

Suggest Investors Direct and/or Intellichoice.

Im currently financing thru Intellichoice.

Hope this helps.

 

[Qlds007]

Nodoc loans are by no means extinct although certainly becoming harder to find by the day.

Those that still exist are charging for it.

 

[Rixter]

Those that still exist are charging for it.

Yes some do. However chances are those investors that are looking at the option to go down this route would have been investing for some time and as such should have substantial size portfolio's anyway.

As such any slight increase in possible charges is more than offset by the increases by their portfolio's growth and more importantly allows them to continue purchasing and growing it further.

 

[ianvestor]

I've used Macquaries no docs (70% LVR) in the past, but they no longer available for new borrowers.

Since when are they no longer available? I got this exact deal with them about 6 weeks ago, and I was a new customer.

I think the rate is around 9.5% from memory.

 

[Nth Brisbanite]

Since when are they no longer available? I got this exact deal with them about 6 weeks ago, and I was a new customer.

I think the rate is around 9.5% from memory.

Can't understand what is going on. Everything I've read recently indicates that Macquarie are no longer writing no docs. A number of brokers on this forum have confirmed this. You must have got in just in time.

A broker told me the other day that Macquarie have sacked quite a number of employees (including his contact) in the residential mortgage lending section.